Last year the renewable energy company Econcern went bankrupt. Now stories emerge that biofuels are as bad as fossil fuels. What is happening to the renewable energy industry? What can we learn to build real sustainable business successes?

Renewable energy is going through the hype cycle

The necessity of renewable energy became a public priority after Al Gore’s An Inconvenient Truth. A lot of good news has reached us since, like the 31,7% growth of worldwide wind power last year (with large subsidies). Also interesting is the initial public offering of Tesla Motors on the NASDAQ stock exchange. This electric vehicle manufacturer raised 226 million $ successfully some weeks ago. However, there are also renewable energy sources of which expectations are deflating. Hydrogen remains the promise for the future, but when will this future arrive? The independent environmental research institute CE Delft published recently that current bio fuels are as bad as fossil fuels: “Conversion of forest or grassland to agricultural land can lead to very significant releases of carbon to the atmosphere”. And last year the renewable energy company Econcern got financing issues after years of exceptional growth and went bankrupt. These are signs that the renewable energy industry is going through hype cycles.

Hype cycles are patterns for emerging technologies

Since 1995, Gartner has described the over-enthusiasm and disappointment of emerging technologies and business areas with “hype cycles”. The hype cycle is characterized by an innovation, the technology trigger. This is the start of a hype where the technology becomes highly visible for the public and where expectations inflate. At a certain moment, the hype peaks and the expectations start to deflate. This ends in the trough of disillusionment. Finally a period starts where the technology can become a real sustainable business success and reaches the plateau of productivity.

Hype cycles have been observed for centuries

Gartner started using this model in 1995, but this cycle has been observed for centuries. A well known bubble of inflated expectations and speculation is the Dutch tulip mania of 1593, where tulip bulbs reached very high prices and the market suddenly collapsed. A more recent example is the worldwide dot-com bubble of 2000. Clearly tulip bulbs have now reached the plateau of productivity with 590 million euro in exports for the Netherlands in 2009. And the internet industry is also out of the trough and promises from the 1990s are getting realized. It is likely that renewable energy technologies will also follow this cycle. So how can this knowledge help you to build your new business successfully on the long term?

Renewable energy can be made into sustainable business successes with focus and mass

Several things can be done to make your business a sustainable success during hype cycles.

Start with identifying and monitoring pro and con opinion leaders. And pay special attention to the opinion leaders that tone down the hype, as they get the least airtime in the media. The expert opinions usually diverge before the peak of inflated expectations and converge after the peak.

Take actions to prevent your cash curve from following the hype cycle curve. One way is to set up a transition path with intermediate steps towards your final goal. A complete hydrogen economy is still years away, but there are already business opportunities on the way, like Nedstack’s fuel cell. Make use of these low hanging fruits.

Finally, if you intend to make your business a long term success, you need to do two extra things that are useful for any innovation:

1. Focus your efforts: choose well in your new business portfolio
2. And Mass: back your choices with investments for the long term and keep faith during the fall.

Changing times always present new opportunities. One of them is the opportunity to get easy access to financing before the expectations reach the peak in the hype cycle. It is a paradise for new business developers.

Written by: Nanning de Jong, consultant at The Bridge business innovators